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If City Council chooses the alternative approach, the estimated loss of revenue for Fiscal Year 2022/23, due in part to the 15 percent mandatory conservation, is already included in the Council approved Mid-Year FY 2022/23 budget. If the City Council approves the implementation of the Stage 2 Water Shortage Rates and they become effective on June 1, 2023, Water Shortage Rates shall be applied to customers after a customer's full bi-monthly billing cycle begins on or after June 1, 2023. Any revenues from the Water Shortage Rates will be collected in FY 2023/24. BACKGROUND The City is a water retailer that operates and maintains a water distribution system to deliver water to city residences and businesses for domestic and irrigation uses, as well as for other uses such as firefighting. Alameda County's Zone 7 Water Agency is the Tri-Valley's water wholesaler that procures water from the state and produces water from its regional wells, which it sells to Pleasanton and other Tri-Valley water retailers for distribution. Pleasanton is a unique retailer in that in addition to buying water from Zone 7, it also has an annual groundwater pumping quota of 3,500 acre feet from its own local wells. This 3,500 acre feet is approximately 20-25 percent of all water delivered within Pleasanton. The water received from Zone 7 and the water produced by the city's wells is tested, as is required by the State Water Resources Control Board Division of Drinking Water (DDW), to ensure quality water is delivered to all customers within Pleasanton. On October 31, 2022, DDW issued General Order DW 2022-0001-DDW (Order), which beginning the first quarter of 2023 required the City to perform testing for per- and polyfluoroalkyl substances (PFAS), which are contaminants of emerging concern. This Order rescinded and replaced previous PFAS testing orders issued by DDW to the City dating back to 2019. On October 31, 2022, DDW also established a notification level (NL) and response level (RL) for PFHxS. This is the fourth PFAS constituent to have an established NL and RL; the other three constituents (PFOS, PFOA, and PFBS) had NLs and RLs established between 2019 and 2021. As defined by DDW: • NL is the concentration level of a contaminant in drinking water delivered for human consumption that DDW has determined, based on available scientific information, does not pose a significant health risk but warrants 30-day notification to the governing body and annual notification to the public via the consumer confidence report. • RL is the concentration of a contaminant in drinking water delivered for human consumption at which the water system, in the case of PFAS, must either (1) take the source out of service immediately; (2) utilize treatment or blending, or (3) provide immediate public notification of the exceedance if the source remains active. Page 2 of 6